Rite Aid Corp. has narrowed its search for a mammoth East Coast distribution site to Maryland and Virginia, setting the stage for a regional dogfight for as many as 1,000 new jobs.

If Rite Aid, the nation's largest drugstore chain, selects Maryland for the roughly $50 million project, that would strengthen its ranking as one of the state's largest private-sector employers. Rite Aid, with 174 stores and a technology center in Hunt Valley, currently employs more than 2,800 here.

Including the distribution jobs, Rite Aid's employment would rival that of the General Motors Corp.'s Baltimore assembly plant on Broening Highway, one of the area's largest manufacturers and the region's 10th largest private employer overall.

In Maryland, Rite Aid is focusing on sites of more than 100 acres in Perryman in Harford County and Perryville in Cecil County for its 1 million-square-foot warehouse, sources said. Such a building would contain twice the space of the 35-story USF&G Tower downtown.

"Rite Aid has a substantial presence here, and we will do whatever we can to help them expand," said James T. Brady, secretary of the state's Department of Business and Economic Development. "It's on our radar screen."

It could not be determined how many sites are being evaluated in Virginia or why Pennsylvania is apparently not being considered. Attempts to reach company officials and Rite Aid representatives at real estate firm Colliers Pinkard were unsuccessful.

Although Camp Hill, Pa.-based Rite Aid, with $6 billion in annual sales, is believed to favor Maryland because of the state's proximity to its headquarters and because its chairman and chief executive, Martin L. Grass, resides in Baltimore County, Virginia is believed to be a viable option.

A recent Johns Hopkins University study noted that Maryland's distribution center growth over the past two decades has trailed Virginia's, producing a simmering competition for jobs between the states.

"In Virginia, the Hampton Roads port has attracted a lot of cargo, and Dulles Airport has dominated air cargo transportation," said Dr. Maryann P. Feldman, a Johns Hopkins Institute of Policy Studies research scientist. "And they've been very aggressive overall in scouting out these types of facilities."

Most notably, Virginia has been aggressive in providing financial incentives to businesses who consider moving there, a factor that is almost certain to influence Rite Aid's decision. Because of its expected investment and potential employment, Rite Aid is likely to seek a financial aid package in excess of $7 million, sources say.

Such a request would force Gov. Parris N. Glendening into either capitulating to Rite Aid's request, in order to boost the state's employment rate, or risk losing to Virginia. But if the company picks Maryland, Glendening will likely be under pressure to grant substantially higher financial incentives than he has already.

In the past 14 months, he has approved more than $14 million in grants and loans to offset the costs of new distribution facilities planned by Saks Holdings Inc., Staples Inc. and McCormick & Co. Of those, Saks received the most money, $6 million, even though it will employ only half the number projected by Rite Aid.

Grass telephoned Glendening earlier this month to make a pitch for assistance from DBED, although exact figures regarding aid were not discussed, sources said.

"State incentives will become the critical issue here," said one source involved in the Rite Aid search process, who asked not to be identified.

Rite Aid is expected to make a decision within the next two months, with construction tentatively scheduled for spring, sources said. The company hopes to begin using its new facility by the end of next year.

Rapidly expanding Rite Aid plans to open 400 stores nationwide next year, adding to the more than 2,800 it now operates.

And later today, Rite Aid shareholders will vote on a proposed $2.3 billion purchase of competitor Thrifty PayLess Holdings Inc.

If Rite Aid chooses Maryland, it would mark the second time in as many years that the company has shifted operations here from rTC Pennsylvania. In July 1995, Rite Aid leased 16,000 square feet of office space in Hunt Valley for a new information systems center, and has since doubled the computer center's space. In that deal, the state offered the company a $450,000 grant, provided it created 50 permanent jobs.